Social landlord downgraded after closing loss-making training subsidiary

In its narrative judgements published as part of the annual check, the RSH said that Aspire had weaknesses in financial planning and risk control which meant that the board was not fully sighted on the financial exposures associated with a loss-making subsidiary. 

This subsidiary has now been closed at a cost to Aspire and the landlord has also committed to additional expenditure on net zero carbon works that were outside its business plan in order to access grant funding. 

The additional costs arising from these decisions meant that Aspire needed to secure the agreement of its funders to maintain covenant compliance.

While it was not named in the judgement, Aspire confirmed that the subsidiary in question was Achieve Training, which it announced the closure of in November “following a sustained period of financial strain”.

The company supported young people into training and apprenticeships and had run for 40 years, joining the Aspire group structure in 2008. 

In November, Aspire said it had experienced a sharp drop in learners, due in part to the pandemic. “In addition, funding models and operational guidance has changed, which has introduced many new challenges for the business,” it added.

The regulator has assurance that Aspire continues to comply with the financial viability elements of the standard and has an adequately funded business plan and sufficient security in place.

However, Aspire’s interest cover position is reduced as it is investing in its stock, and funding the close-down of the subsidiary.

In response, the landlord said: “This change in viability follows a similar trend in the social housing sector – reflecting the significant economic uncertainty faced amidst the cost of living crisis, and the need to increase investment in our homes. This is coupled with a difficult economic environment for private training providers such as our subsidiary Achieve Training, which regrettably led to its closure in the autumn of 2022.  

“Our priorities will be to continue to support our tenants, strive to deliver excellent services, improve the quality of our homes and work towards a governance regrade, with the aim to return to G1 in 2023.”

For Honeycomb, a charitable community benefit society that was formed in 1965, the RSH highlighted how the association is updating its stock data information and increasing investment in its existing homes.

Delivering this investment, coupled with the current economic uncertainty in relation to wider inflation and interest rates, reduces Honeycomb’s capacity to respond to adverse events.

But the regulator also said that Honeycomb’s financial plans are consistent with and support its financial strategy, alongside an adequately funded business plan and sufficient security, and that it is forecast to continue to meet its financial covenants.

Julie Guildford-Smith, chief executive at Honeycomb, said: “It’s disappointing to receive this judgement by the regulator. Whilst it doesn’t minimise the seriousness of the outcome, the fact that so many housing associations have recently been regraded does indicate the challenges the entire sector faces in the current economic climate.

“Whilst we are still compliant for both viability and governance, we are determined to do better.”

The RSH said that Red Kite, a charitable community benefit society formed in 2011, had addressed the issues raised in the judgement it published in July 2021.

Based on evidence gained from reactive engagement, the regulator now has assurance that Red Kite has strengthened its governance arrangements. 

Compliance reporting on landlord health and safety obligations and financial covenants have improved and is sufficient to enable the board to exercise effective oversight. 

In addition, Red Kite has improved its stress-testing and has strengthened its mitigation strategies. The board now has appropriate oversight of key risks facing the business.

The regulator also confirmed the gradings of seven other organisations.